Microsoft Corp. MSFT +1.02% Chief Executive Satya Nadella recently pledged to be "bold and ambitious" to remake the company and its culture. The first task, he signaled in a memo on Thursday, would be cleaning up some of his predecessors' messes.
The recently named Microsoft chief is cutting up to 18,000 jobs in the next year, or about 14% of the company's workforce, the largest layoffs in its history. About two-thirds of the cuts would come from its phone and tablet staff, which bulged after former CEO Steve Ballmer agreed to buy Nokia Corp.'s NOK1V.HE +2.27% handset business last fall.
Microsoft said it plans to eliminate as many as 18,000 jobs, or 14% of its workforce, over the next year, part of a sweeping plan to streamline its operations following the recent acquisition of Nokia's devices and services business. Scott Thurm joins MoneyBeat.
The shape of the job cuts reflect a tough reality for Mr. Nadella: He must repair parts of the company he inherited from former CEOs Bill Gates and Mr. Ballmer before he can reshape Microsoft as he wants. Outside of staff overlap with Nokia, the cuts amount to about 5,500 people, or about 5% of the company's staff before the Nokia deal pushed it to 127,000 people.
Microsoft declined to make Messrs. Gates and Ballmer available to comment.
The company said the job cuts and undisclosed "asset-related" charges would cut pretax earnings by up to $1.6 billion over the next four quarters. Investors sent shares up 1% to $44.53 on the Nasdaq Stock Market.
Mr. Nadella also showed glimpses of his blueprint. He plans to revamp the way Microsoft organizes its engineers and will close a high-profile project that Mr. Ballmer launched to create television-like programming for its Xbox videogame game console. Mr. Nadella also halted work on a line of Nokia smartphones powered by the Android operating system, which had put Microsoft in the position of supporting the software of rival Google Inc.
"Steve Ballmer threw a massive house party for a decade, and now Nadella is there the morning after cleaning up," said FBR Capital Markets analyst Daniel Ives. "He's using this opportunity to clear the decks so they enter the next fiscal year in a position to put good money into the strategic areas they want to focus on."
One an advantage for Mr. Nadella is that, unlike many companies that carry out large layoffs, Microsoft is financially healthy.
Revenue is growing, and analysts project the company generated $22.5 billion of net inco
His challenge is making Microsoft relevant in fast-growing technology areas including mobile computing. Executives fear the company's empire in corporate software could be at risk if it doesn't act decisively.